Striking a Balance to Boost the Market

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Friday, March 30, 2012

How can housing policy be responsive to today’s urgent needs (e.g., foreclosures, a sluggish housing market, affordability, etc.) and simultaneously address long-term trends (e.g., an aging population, growth of younger households)?

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Housing policy over the last several decades has been far too intransigent and slow to react to America’s changing demographics. Programs, once established, seem to last forever, even if at a reduced level. Well-intentioned policymakers inherit existing programs and even when the policymaker is prone to change, the change amounts to nibbling around the edges. Programs find their way into a governmental budget, be it federal, state or local, because there is a constituency that wants that program. Real change is very difficult to achieve.

Today’s policymakers face a difficult challenge because of the speed with which change is taking place in the America of today. Life expectancy grows, students graduate from college but continue to live with their parents and the number of large families with a low income level increases.

The downturn in homeownership rates, following the artificial spike of the go-go years, means that we need affordable rental housing. Private sector builders will tell anyone who will listen how much more expensive it is to build a rental unit to the standards of HUD assisted housing than for a privately owned, non-subsidized rental building. 

The lack of real world experience at all levels of government bureaucracy is a major impediment to innovative, responsive and effective policies. The nature of bureaucracy is to be slow and lumbering. The nature of need is to be immediate and fast growing.

Empty nesters (when they are certain the kids are not coming back home to live) are leaving the four bedroom colonial for something more “manageable.” Smaller single family homes are in order. So too are additional rental units. Voila! REO’s need to be occupied to stabilize neighborhoods, banks or the GSE’s need to get income from the REO’s they hold and America needs rental units. Turning REO’s into rental units is a multi-pronged problem solver.

Mortgage rates remain exceedingly low and apparently will into the foreseeable future per Federal Reserve Chairman Bernanke. Housing prices have yet to recover from the downward spiral of the meltdown. Together, rates and prices make for an affordable purchase. Now if only there was credit available.

Credit, it seems, has disappeared in a cloud of uncertainty. Regulatory uncertainty (the CFPB is hard at work); Secondary market uncertainty (wither the GSEs); Political and policy uncertainty (can Congress agree to do anything?).

Every crisis gives birth to a reaction. The aftermath is characterized by finger pointing, vows of “never again” and proposals to ensure just that. The result is often an overreaction that fails to distinguish between real problems and mere aspects of the process that are essential to efficient operations.

Former Treasury Secretary Larry Summers said it best not long ago: “The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” 

Kevin Igoe is the owner of IGOE/Associates and serves as a legislative consultant to the Bipartisan Policy Center.


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